Agent vs. Dave
by Dave Ramsey
| My life insurance agent recently sold me a universal life policy. When I mentioned your name and asked if term life insurance was better, he laughed and said term insurance is horrible. I’m a little confused right now. What’s the truth here? |
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Dear Dave,
My life insurance agent recently sold me a universal life policy. When I mentioned your name and asked if term life insurance was better, he laughed and said term insurance is horrible. I’m a little confused right now. What’s the truth here?
Guy
Dear Guy,
The truth is that universal life insurance is one of the worst financial products on the planet. You need to find yourself another insurance agent!
If a 30-year old buys $125,000 of universal life for 20 years it will cost around $145 a month. That same person can buy $400,000 of 20-year level term insurance for about $15 a month. That’s a savings of $130 a month! The term life may not have a savings program attached, but you can do your own saving using good, growth stock mutual funds and get a much better return.
Within the first three years you’ll generate nothing with universal life, because it all goes to fees and commissions. Plus, studies show that the average net yield on universal life is only two to five percent. That stinks! The 30-year old who bought universal life will turn around 20 years later to find it has a cash value of about $27,000. By the time he or she is 70, the cash value will only be about $66,000.
On the other hand, if you buy good, level term insurance and invest the difference you’ll see in savings in good, growth stock mutual funds, it will be worth $133,000 at age 50. By the time you’re 70, it will be worth about $1.5 million!
Which one sounds better now?
Dave
Posted by Vicki
from Charlotte, NC
What happens to your coverage after 20 years when your term life policy runs out? You're now 50 years old and have to purchase another policy and you're older now and have to pay more in premiums. My Dad purchased a term policy and now is old and can't buy another policy and is out of luck with no life insurance! What is your reponse to that!?
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Posted by Robert
from NC
While universal insurance may not be the best choice, term coverage has it's limits, as well. According to the insurance industry, 98% of all people with term coverage never file a claim. In other words, it's great for the insurance company.
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Posted by ira
from kennesaw, ga
I think Guy should look for another agent; I wouldn't continue to reward this man with my patronage. I'd also educate any friends who might be using his "services."
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Posted by jerry
from Texas
I think Guy needs to find a new financial straight talk professional. I think Dave pulled these figures out of thin air. The U/L policy that I have for $125k cost me $33/mth for 30yr.old not $145. Life insurance was never meant to be an investment product, but it is nice to have your money back plus interest, rather than throwing it away on renting a term policy if you were to live past 20 years. Personally I have both policies to cover my needs. Dave dont be so narrow minded. Both types of policies serve their purposes.
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Posted by Pate
from North-Eastern Colorado
This has bee the age-old debate since Noah. Financial advisers always say "Buy Term Life and invest the difference!" That's great if you have a good chance of dying YOUNG! But if you'll need Life insurance when it really COUNTS - like when you are at risk of actually dying... Term Life is unaffordable and
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Posted by Dennis
from california
I would have to agree that
"Universal Life" is a poor way to save money but I would like to know what insurance policy of any kind uses all of the first 3 years premiums to pay commissions and fees. You don't have to mislead people to make your point. All insurance products have fees whether hidden or disclosed. The target premium (first year) on any policy is paid out in commissions. If one pays that amount for 3 years there will be cash value but probably not much surrender value. People shouldn't expect to use permanant life insurance for short term savings.
As for horrible? Term insurance, in most cases, is not in force when the insured dies.
Most beneficiaries would prefer that the policy be in force when the insured dies.
So which is horrible?
It depends on when your are going to die.
One would do well to find an agent who understands that there is a place for most plans depending on the client's wants and needs.
What sounds horrible for one, may be a great plan for another.
I think that this publication ought to be above demonizing one based on limited information.
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Posted by Andre
from Illinois
I would agree with this response except for one thing. I have borrowed often against my Universal life policy, something i could never have done with my Term life.
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